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Corporate Governance : A Global Perspective
The book under review helps to traverse various facets of corporate governance. The introductory chapter throws light on the style of functioning of boards. A typical board structure can comprise a majority of outside non-executive directors (NEDs), minority outside NEDs, all insider directors, or with no common members between the board and management. Relying on structural, process and mediation models, the volume draws insights into functioning of Swissair and General Motors. Swissair failed due to governmental interference, inappropriate separation of powers, affiliation rather than competency as criteria for board membership, and the failure to maintain accurate financial statements. The next chapter Board of Directors stresses on separating the role of the chief executive Officer (CEO) and managing director, as the former leads the board while the latter the company. The rest of the discussion revolves around rationale and role of independent directors. Generally, inside directors owe their loyalty to the CEO and rarely have the guts to challenge him. It calls for committed and knowledgeable independent directors who can act as mentors in balancing conflicting interests of stakeholders. Their true role is not to question the management, but to challenge it; challenge strategic assumptions; and challenge business scenarios. ‘Independence’ can neither be construed as ‘indifference’ nor in words of Warren Buffet "collegiality trump independence" in the boardroom. Those who feel that their views are going unheard in a board, it is better to step down. The editors rightly differentiate between NEDs and independent NEDs based on "independence" definition enshrined in UK Combined Code or India’s SEBI Clause-49. The discussion comes to an abrupt end by cautioning that unethical practices adopted by Worldcom and Enron not only led to their collapse, but had an adverse impact on good governance. A synoptic view on board size, its composition along with tenure and ceiling on board membership follows. The board has to be an amalgam of non-executive and executive directors to accommodate variety of experiences, skills and attributes. If UK Code and Indian SEBI insists for 50 per cent members to be independent and German Boards for an entirely independent Board, one-third membership is the norm in Singapore. Again, UK and New Zealand discourage the Chief Executive from becoming Chairman of the company. As regards individual directorships, generally held view is they should hold directorship of three to five boards. But, Indian counterparts sometimes hold even 14 directorships. Besides, there is no consensus on the tenure of an independent director. In the UK, one serves up to nine years while in the USA, directors continue to serve up to 75 years. The next chapter focuses on standing committees. The audit committee is charged with oversight functions. Taking a clue from Satyam scandal, a case for joint audit by external auditors is nicely made. While discussing the role of the nomination committee in selection of directors and key positions in the corporate sector, Indian DPE guidelines are explained. These primarily deal with public undertakings and have no linkages with the corporate world. The effectiveness of the codes on corporate governance across the countries is taken up thereafter. The USA took the lead to adopt best practices. The editors rightly observe that very limited studies have analysed their impact on performance. The concluding chapter is interesting and informative. It elucidates governance practices of China, France, Germany, UK and Italy. In China, a majority of listed firms are owned or controlled by an unlisted parent company. The shareholders yield extensive powers normally reserved for the boards in the UK and USA. Germany has two-tier boards. Contrary to the German Code, former CEOs become supervisory board chairmen. The UK’s governance model is based on self regulation. It advocates a unitary board with the separation of powers of the CEO and chairman. The volume exhaustively enlists recommendations of various UK Committees for improving governance standards.
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Corporate
governance is indispensable for a vibrant capital market. It is the
blood that fills veins of transparent disclosures and accounting
practices. It is no longer confined to the halls of academia and is
increasingly finding acceptance for its relevance in the industry.
There is no single model of good governance. But common to all
governance regimes, it aims at enhancing shareholders’ value along
with interests of stakeholders, improving economic efficiency of
enterprises and thereby overall the country’s economy.